SV Sparkassen-Versicherung places first cat bond: trust for the future!

SV Sparkassen-Versicherung places first cat bond: trust for the future!

SV Sparkassen-Versicherung (SV) announces that it has successfully placed its first catastrophe bond (cat bond) called “Liongate Re”. This significant transaction secures $100 million in reinsurance for the company. The Cat Bond is an essential part of SV's reinsurance strategy and complements the existing traditional reinsurance partnerships.

The bond was issued through an Irish special purpose vehicle (DAC). The name “Liongate Re” refers to the location of the SV group headquarters at the “Löwentor” in Stuttgart. The catastrophe bond is the result of a collaboration between SV and the Japanese cooperative insurer Zenkyoren, both of which share values ​​such as financial stability and reliability.

Special features of the catastrophe bond

The “Liongate Re” Cat-Bond offers earthquake reinsurance in Germany and Japan for a period of three years. In Germany, hedging is on a parametric basis, while in Japan it is based on an indemnity basis. Dr. Andreas Jahn, CEO of SV, emphasizes that this step enables access to alternative risk capital and reduces dependence on the traditional reinsurance market.

Tsuyoshi Kawagoe, General Manager for Reinsurance at Zenkyoren, adds that the catastrophe bond usefully complements existing structures and offers additional protection against Japanese earthquake events.

The context of cat bonds

Cat bonds, which have been issued for around 20 years, now have an estimated market volume of around $50 billion. The majority of transactions occur in over-the-counter trading and are focused on institutional participants. The average turnover is over 100 million euros, although cat bonds are not primarily accessible to private investors.

These bonds not only offer attractive interest rates, but also many other advantages. Issuers, typically insurance or reinsurance companies, use special purpose vehicles (SPVs) for issuance. The interest and repayment of the securities are tied to defined events, such as natural disasters. If such events do not occur, investors benefit from interest, risk premiums and the repayment of capital. However, if damage occurs, repayment can be postponed or canceled proportionately.

A key advantage for issuers is the ability to pass on the catastrophe risk via the capital market. Interest payments and repayments not only depend on the issuer's creditworthiness, but are also directly linked to natural disasters. In addition, fund managers generally invest no more than 2-3% of the fund assets in individual bonds, which helps spread risk across continents and regions and avoids cluster risks.

The interest rate on cat bonds is often over 5%, which can enable high returns for fund investors. Cat bonds also show a low correlation to other asset classes, which reduces volatility in a portfolio. However, declining default rates have historically reduced the yields of these bonds.

Overall, it can be said that SV Sparkassen-Versicherung is taking a significant step towards diversified reinsurance with the placement of its first cat bond, while the market for cat bonds continues to gain in importance.

For more details on cat bonds and how they work, see The investment. Information about SV Sparkasse insurance is available Insurance magazine available.